Crexendo, Inc. (CXDO) Earnings

Management highlights

### Overall Financial Performance - Delivered 49% YoY total revenue growth, with GAAP net income of $1.1 million ($0.03 per diluted share), non-GAAP net income and adjusted EBITDA of $4.1 million (a 46% YoY increase). - Generated $4.8 million in operating cash flow for the first half of 2026, an 89% YoY increase, ending the quarter with $18.3 million in cash and cash equivalents. - Remained GAAP profitable for 12 consecutive quarters while absorbing acquisition-related costs for ESI. ### New Customer Growth - Secured 11 new platform customers in the first half of 2026, compared to just 2 in the same period last year, with 6 new logos added in Q2 alone. Four of the 11 new customers migrated from competitor MetaSwitch, and one migrated from Cisco Broadsoft. - Average initial deal size is smaller than historical averages (averaging ~$250,000 per initial order), driven by customer preference for lower-upfront-capital 'cap and grow' strategies in uncertain economic conditions; upgrade orders from existing customers average 50% higher than initial orders. ### ESI Acquisition Integration - Integration is progressing ahead of expectations, with ESI Q2 sales exceeding initial management projections. Back-office functions (accounting, legal, marketing) have been integrated, and engineering teams are working closely together. - ESI's existing reseller channel has remained engaged, and the combined value proposition of Crescendo + ESI has driven stronger-than-expected sales growth with no post-acquisition sales pause. - Synergies and cost savings from the acquisition are on track to improve bottom-line performance over time. ### Product & Platform Development - Completed migration of all legacy hosted customers to Oracle Cloud Infrastructure (OCI) at the end of Q1, allowing full decommissioning of legacy data centers and driving software gross margin improvements. - Launched Cairo, Crescendo's AI receptionist/orchestrator, in January 2026, which is already seeing strong early traction: it adds an average of $120 in incremental monthly revenue per customer (a 35% increase over average base telecom revenue), with the potential for higher revenue for customers that use Cairo to handle all incoming calls. - The EVP ecosystem partner program now has 57 total vendors, 13 of which offer AI-related solutions. - The next major platform release, Volume 46, is scheduled for launch in Q2 2027, featuring a fully redesigned user interface and product-wide improvements. ### Channel Growth - Technology Service Distributor (TSD) sales grew 39% quarter-over-quarter and 42% year-to-date compared to 2025, driven by strong customer satisfaction ratings, dedicated channel management, and competitor customer dissatisfaction. Remaining performance obligation (future contracted revenue) increased 97% YoY to $139 million, indicating strong future revenue visibility.

Guidance

- Confirms full-year 2026 organic revenue guidance of double-digit growth, with year-to-date organic growth of 11% already meeting this target. - Maintains the target of reaching a $100 million annual revenue run rate by the end of 2026. - Expects AI-related revenue (from Cairo and other AI offerings) to become a meaningful contributor to overall revenue in 2027. - Confirms the 17% adjusted EBITDA margin achieved in Q2 is maintainable through the end of the year, matching 2025 full-year levels after a Q1 2026 dip. - Expects gross margin improvements to continue as both the software and telecom segments scale.

Segment performance

Crescendo reported total Q2 2026 revenue of $24.6 million, a 49% year-over-year increase. The three core product segments had the following performance: 1. Service revenue: $14.9 million, a 78% YoY increase, accounting for 60.6% of total revenue, with a 67% gross margin. 2. Software solutions revenue: $7.3 million, a 5% YoY increase, accounting for 29.7% of total revenue, with a 70% gross margin. 3. Product revenue: $2.5 million, a 104% YoY increase, accounting for 10.2% of total revenue, with a 44% gross margin. Acquired company ESI contributed $6.9 million in Q2 revenue, up from $2.1 million in March Q1. The EVP ecosystem vendor program generated $400,000 in revenue during the quarter. Consolidated gross margin for the quarter was 66%, up 500 basis points from Q1 2026.

Risks & headwinds

Management did not disclose new material risks or operational failures in this call. General risks associated with forward-looking statements are referenced to the company's existing SEC filings (10-K for FY2025 and subsequent 10-Qs).

Analyst Q&A

• Q: What is driving the sharp acceleration in new platform customer wins this year, and when will these new customers generate meaningful revenue? /

  A: Multiple factors are contributing to stronger new logo growth: competitor licensees face uncertainty about future product development, and Crescendo's "Sessions Not Seats" pricing model cuts platform costs by 40-50% compared to competitors, which is particularly attractive in uncertain economic conditions. New customers are adopting a lower-upfront-investment cap and grow strategy, which will drive future upgrade revenue as customers expand their usage of the platform, making these new wins a source of durable future annuity revenue.

• Q: How quickly is the new Cairo AI offering converting trials to paid deals, and when will it contribute meaningful revenue? /

  A: Cairo launched in January 2026 from zero customers, and has already seen strong early traction with new customers, licensee resellers, and existing retail customers. Paid customers see an average 35% incremental revenue increase per account, with potential for much higher revenue for customers that use Cairo to handle all calls. Slow, deliberate rollout is expected to continue, with meaningful revenue contribution projected to start in 2027.

• Q: Why has ESI acquisition performance exceeded expectations, and what benefits is it delivering already? /

  A: ESI sales hit an average of $2.3 million per month in Q2, up from $2.1 million in March, with no post-acquisition sales pause that is common in mergers. Early success stems from proactive outreach and reassurance to ESI's existing reseller channel, which has retained confidence and remained engaged, and the combined Crescendo-ESI value proposition is stronger than either company offered standalone. The integration process is going smoothly, with synergy and cost savings on track.

• Q: What is the company's current appetite for additional M&A, and when might another deal close? /

  A: The company has a strong pipeline of potential acquisition targets that fit its disciplined, strategic criteria. The ESI integration is nearly complete, with full integration expected by the end of 2026, so the company can only process one major acquisition at a time. A new deal could close as early as Q4 2026, but it is also possible that the next transaction will slip into Q1 or Q2 2027, depending on deal size and due diligence timelines.